This is the accessible text file for GAO report number GAO-04-819R 
entitled 'Federal Emergency Management Agency: Lack of Controls and Key 
Information for Property Leave Assets Vulnerable to Loss or 
Misappropriation' which was released on July 15, 2004.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

July 15, 2004:

The Honorable Michael Brown:

Under Secretary for Emergency Preparedness & Response:

Department of Homeland Security:

Subject: Federal Emergency Management Agency: Lack of Controls and Key 
Information for Property Leave Assets Vulnerable to Loss or 
Misappropriation:

Dear Mr. Under Secretary:

As you know, prior to the transfer of the functions of the Federal 
Emergency Management Agency (FEMA), effective March 1, 2003, to the 
newly established Department of Homeland Security (DHS) within the 
Emergency Preparedness and Response Directorate (EP&R), FEMA was one of 
24 Chief Financial Officers (CFO) Act agencies required to obtain 
annual financial statement audits.[Footnote 1] While DHS obtained a 
financial statement audit covering the period from March 1 through 
September 30, 2003, no financial statement audit was performed for FEMA 
activities for the 5 months prior to March 1, 2003. For fiscal year 
2001, FEMA received a qualified audit opinion,[Footnote 2] which was 
due mostly to the auditor's inability to determine the accuracy of the 
amount reported for FEMA's equipment as well as other property issues. 
A major contributing factor was the lack of a property management 
system that adequately met FEMA's accounting needs or Joint Financial 
Management Improvement Program (JFMIP) requirements.[Footnote 3] 
Although FEMA received an unqualified opinion from its auditor in 
fiscal year 2002, the auditor reported six material weaknesses[Footnote 
4] (one relating to its real and personal property system processes) 
and one reportable condition[Footnote 5] as well as significant year-
end adjustments made to property accounts. Furthermore, the audit 
report noted that FEMA did not have policies and procedures in place to 
ensure the accuracy of data recorded in its personal property system, 
the Logistics and Information Management System (LIMS).[Footnote 6] 
Appendix I categorizes the weaknesses identified in FEMA's fiscal year 
2002 audit report into nine general areas for which personal property 
controls need to be improved.

The previously reported weaknesses as well as the very nature of FEMA's 
mission, disaster response, which entails the acquisition of new 
personal property, sometimes very quickly, raise the risk that property 
may have been acquired but not recorded in LIMS and not accounted for 
by FEMA in the interim 5 months before the agency functions were 
transferred to DHS. As such, given the past weaknesses and risks 
surrounding FEMA's property management, the objectives of our review 
were to determine (1) whether controls were in place to ensure that 
property acquired during the 5 months prior to FEMA transferring its 
functions to DHS was properly accounted for in LIMS and (2) whether 
FEMA has corrected previously reported property management weaknesses.

To accomplish this work, we reviewed DHS's fiscal year 2003 Performance 
and Accountability Report, FEMA's fiscal year 2002 Performance and 
Accountability Report, reports by FEMA's Office of Inspector General 
(OIG) and Independent Public Accountants; performed walkthroughs of 
FEMA's acquisition and property management functions; and conducted 
interviews with relevant FEMA officials. We conducted our review from 
October 2003 to June 2004 in accordance with U.S. generally accepted 
government auditing standards.

Results in Brief:

FEMA continues to lack the controls and key information necessary to 
ensure that personal property is properly accounted for. Accordingly, 
we were unable to perform statistically based testing to conclude 
whether or not FEMA properly accounted for property acquired during the 
5 months prior to transferring its functions to DHS. We attempted to 
manually trace property items from the acquisition system and related 
documentation to the property system. Because these systems do not 
share common data identifiers such as serial numbers, purchase order 
numbers, and the like, we were unable to complete our tests of 
individual items.

Absent integrated or adequately interfaced systems with the key 
information necessary to track and account for property, accountable 
and sensitive property is highly vulnerable to loss or 
misappropriation. For example, FEMA's current property system, LIMS, 
does not interface with the acquisition or financial systems, and lacks 
a common data identifier, such as a serial number or invoice number, 
which would allow managers to track property from its acquisition to 
its receipt and entry in the property system through disposal. In 
addition, while the original acquisition date was recorded in LIMS, 
users of the system were able to change that date and frequently did so 
to reflect when items were transferred to other locations.

FEMA has not corrected its reported weaknesses related to property and 
equipment. Its property system is still not JFMIP compliant. Although 
new data fields have been added to address compliance, the systems 
holding the data needed to populate those fields are not linked to LIMS 
and thus, do not routinely share information. While processes have been 
developed to transfer information for certain data fields manually, it 
has only been done for capitalized property, which makes up less than 1 
percent of property items and roughly 20 percent or $73 million of the 
total property value in LIMS. FEMA's fiscal years 2001 and 2002 
auditors reported material weaknesses related to FEMA's accounting for 
real and personal property, and we reiterated these weaknesses in our 
fiscal year 2003 Performance and Accountability Series.[Footnote 7] In 
addition, due to the reduced materiality of FEMA's real and personal 
property for financial statement audit purposes, these weaknesses were 
not included in the DHS's departmentwide audit report. Instead, the 
material weaknesses were included in an observations and 
recommendations comment provided to EP&R management. Due to decreased 
visibility of this issue and the seriousness of these problems given 
the nature of FEMA's operations, immediate corrective actions are 
warranted, so that these problems do not continue to grow or assets are 
not unnecessarily vulnerable to loss or misappropriation.

This report makes six recommendations for actions, that, if fully 
implemented, should help FEMA and, consequently, DHS, better protect 
and account for its accountable and sensitive property. We obtained 
oral comments on a draft of this report from FEMA officials. They 
generally agreed with our conclusions and recommendations, but stated 
that some of the actions called for are already in place. As such, we 
have incorporated changes to emphasize that the appropriate officials 
not only receive the inventory certifications and documentation, but 
also review, follow-up on, and maintain them. FEMA officials also 
provided technical comments, which we incorporated as appropriate.

Background:

Effective March 1, 2003, the functions of FEMA were transferred to the 
Department of Homeland Security (DHS) within the Emergency Preparedness 
and Response (EP&R) Directorate. Prior to the transfer to DHS, FEMA was 
one of the 24 CFO Act[Footnote 8] agencies required to obtain annual 
financial statement audits. Now that it is a component of DHS, however, 
it is no longer subjected to annual, stand-alone audits. Further, 
because its real and personal property issues are much smaller in scope 
compared to other agencies and components transferred to DHS, such as 
the U.S. Coast Guard, FEMA's property is deemed less material for 
agencywide financial statement audit purposes, which results in less 
rigorous audit procedures and reviews than when it was a stand-alone 
agency.

In fiscal years 2001 and 2002, when it was a stand-alone agency, the 
auditors reported that, among other things, FEMA did not have policies 
and procedures in place to ensure the accuracy of data recorded in its 
property system. This system, LIMS, was developed in-house for the 
special property tracking needs of FEMA's disaster-related recovery 
mission. Since its inception in 1993, the software has been updated 
several times, resulting in different versions. LIMS II, which was 
implemented in 2001, was the version in place at the time of FEMA's 
transfer to DHS. According to FEMA officials, it was run on obsolete 
system software, was not JFMIP compliant, and was limited in 
functionality. Further, each regional office had its own separate 
property database, which meant that there were 31 different databases. 
Thus, managers could not effectively oversee the overall property 
inventory. According to one FEMA official, the system contained a 
financial module, but use of the module was optional because the 
accounting system of record was Integrated Financial Management 
Information System (IFMIS), an entirely different system; thus, the 
module was rarely used.

Over the course of fiscal year 2002, FEMA took steps to improve its 
property accounting. For example, FEMA hired contractors to conduct an 
agencywide inventory of capitalized personal property (property valued 
at $25,000 or greater) to ensure the correct reporting of equipment and 
related depreciation. Based on inventory results, FEMA recorded prior 
period adjustments that increased equipment acquisition costs and 
related depreciation by $74.5 million and $71.7 million, respectively. 
In addition, FEMA had planned to acquire a new JFMIP-compliant 
acquisition system in fiscal year 2002, but plans to do so were placed 
on hold because of an OMB moratorium on technology investments for 
agencies transferring activities to DHS. Shortly after the transfer to 
DHS (April 2003), FEMA installed its next iteration of the LIMS system, 
LIMS III, which was designed to be a more complete and accountable 
system. It is a Web-based system that combines all of the 31 formerly 
separate property databases into one system and includes enhancements, 
that, if properly implemented, would allow the system to be JFMIP 
compliant, according to FEMA officials.

According to FEMA guidance prior to FEMA's transfer to DHS, capitalized 
property[Footnote 9] was defined as property over $25,000[Footnote 10] 
and accountable property was property costing over $5,000 or that FEMA 
determined to be "sensitive."[Footnote 11] FEMA guidance stated that 
these items are subject to special control and safeguards and will be 
accounted for and controlled through the use of a custody 
receipt,[Footnote 12] and the agency's property system (i.e., LIMS). 
These items include items such as pagers, cellular telephones, personal 
digital assistants, electronic test equipment, hand tools, and personal 
computers.

Scope and Methodology:

To determine what controls were in place to ensure that property 
acquired during the 5 months prior to FEMA's transfer to DHS was 
properly accounted for in LIMS, we obtained property data for fiscal 
year 2003 from FEMA's Property Management Unit, which was extracted 
from LIMS II, the version in place at the time of transfer. We 
attempted to verify the completeness and validity of the property 
information by comparing purchases recorded in the acquisition system 
for the 5-month period prior to its transfer to DHS, from October 1, 
2002 to March 1, 2003 to entries in the LIMS system for the 
corresponding period. We determined that FEMA's acquisition and 
property systems do not share data and lacked key data we needed to 
perform our tests. Therefore, we were unable to validate that purchases 
made over the 5-month period were properly recorded into LIMS. As a 
result, we narrowed our scope of review to the adequacy of controls 
over property management at the time of FEMA's transfer and the status 
of previously reported property management weaknesses.

To determine whether FEMA has corrected prior reported weaknesses, we 
performed walkthroughs of the purchasing, receiving, and property 
management processes; reviewed FEMA's policies and procedures, as well 
as GAO's Standards for Internal Control[Footnote 13] and JFMIP Guidance 
on Property Management Systems;[Footnote 14] reviewed reports by FEMA's 
OIG and Independent Public Accountants, as well as DHS's fiscal year 
2003 Performance and Accountability Report and FEMA's corrective action 
plans; and interviewed FEMA staff. Our work was conducted from October 
2003 to June 2004 in accordance with U.S. generally accepted government 
auditing standards.

FEMA Did Not Have Controls in Place to Ensure Property Acquired Prior 
to Transfer Was Properly Accounted For:

GAO's Standards for Internal Control in the Federal Government state 
that internal control monitoring should assess the quality of 
performance over time and ensure that the findings of audits and other 
reviews are promptly resolved. Also, internal control should generally 
be designed to ensure that ongoing monitoring such as comparisons, 
reconciliations, and other actions, occurs in the course of normal 
operations, to ensure that known weaknesses are resolved. FEMA lacks 
the controls and key information necessary to ensure property is 
properly accounted for in LIMS. Due to this lack of key information, we 
could not determine whether purchases made during the 5 months prior to 
its transfer were accurately recorded. We attempted to manually trace 
property items from the acquisition system and related documentation to 
the property system, but because these systems do not share common data 
identifiers such as serial numbers or purchase order numbers, we were 
unable to conduct valid tests. These weaknesses would summarily 
preclude FEMA itself from conducting any conclusive internal 
assessments and therefore, there is a risk that property may have been 
purchased but not properly recorded in LIMS.

FEMA did not perform fundamental internal control activities and track 
key information necessary to document and account for property to 
ensure that purchases made during the 5 months prior to its transfer to 
DHS were properly or accurately recorded. Timely, accurate, and useful 
financial information is essential for making day-to-day operating 
decisions. Maintaining the government's operations more efficiently, 
effectively, and economically; meeting the goals of federal financial 
management reform legislation; supporting results-oriented management 
approaches; and ensuring accountability on an ongoing basis are also 
critical. According to the Joint Financial Management Improvement 
Program Property System Requirements Guide,[Footnote 15] property 
management systems must be able to track an item from acquisition 
through changes in location to disposal. The guide also states that the 
property system must forward physical receipt information including 
quantity and date of physical receipt to the acquisition system and 
core financial system. Thus, the property system should be capable of 
interfacing with other financial or mixed systems. However, we found 
that despite FEMA's efforts to improve its current property system, 
LIMS III, it still does not interface or share common data identifiers 
with any of the other systems, including the financial and acquisition 
systems.

Previously Reported Property Management Weaknesses Have Not Been 
Corrected:

We found that FEMA has not corrected material weaknesses related to its 
accounting for real and personal property that its auditor reported in 
fiscal year 2001 and again in fiscal year 2002; and which we reiterated 
in our fiscal year 2003 Performance and Accountability Series.[Footnote 
16] Such weaknesses include noncompliance with JFMIP requirements, key 
systems lacking interfaces with each other, and not performing required 
annual inventories of accountable and sensitive property. Among the 
lingering issues carried over to DHS is that a number of factors have 
combined to make FEMA's property control weaknesses less visible from a 
DHS-wide perspective, but no less severe from the perspective of FEMA 
operations. Therefore, EP&R must recognize the seriousness of these 
issues as it impinges on FEMA operations and develop a course of action 
to resolve or mitigate the issues.

In fiscal year 2002, the auditor reported that FEMA did not have 
adequate accounting systems and processes to ensure that all property, 
plant, and equipment were properly recorded, accurately depreciated, 
and tracked in accordance with its policies and applicable federal 
accounting standards. Specifically, the independent auditor reported 
that FEMA's personal property management system, known as LIMS, was not 
interfaced with its financial system, IFMIS, thus requiring numerous 
manual workarounds to ensure accounting information is accurately 
recorded. LIMS, used primarily to track the location and availability 
of equipment for its mission of disaster response, cannot perform 
accounting functions required by JFMIP. To address this, FEMA officials 
stated that data fields were added to LIMS in its most recent upgrade 
(May 2003) so that the system would meet JFMIP requirements. Having the 
capability to handle accounting information did not entirely resolve 
this problem, however. During our review, we found that these data 
fields were not automatically populated because the system is not 
linked electronically to, and, thus, not able to routinely share 
information with, the acquisition systems or IFMIS. While processes 
have been developed to transfer some data manually, it is limited to 
the data for capitalized property, which makes up less than 1 percent 
of property items and 20 percent or $73 million of the total property 
value in LIMS as shown in table 1. Thus, data for FEMA's accountable 
and sensitive property, which constitute the majority of the property 
and which, by their very nature are more susceptible to theft or 
pilferage are excluded from this process.

Table 1: Property Totals in LIMS as of May 31, 2004.

[See PDF for image]

Property with an initial acquisition cost of more than $50,000 with an 
expected service life of 2 years or more.

Property with an initial acquisition cost of more than $5,000 or 
property, which by their nature are vulnerable to theft or pilferage, 
for which controls and official property records are maintained and 
physical inventories are conducted.

Property of a low dollar value, which loses its identity when consumed 
or when incorporated into another item, or with an expected service 
life of less than 1 year.

[End of table]

Another weakness reported in both FEMA's fiscal years 2001 and 2002 
audit reports is that property acquisition dates were changed when 
items were transferred within FEMA and among disaster sites to reflect 
the transfer dates. Thus, the original purpose of the data field, to 
show when the item was purchased, has been altered to cater to the 
needs of FEMA's mission.

A related problem is that LIMS does not contain data fields to record 
purchase order or invoice numbers that can be used to link property 
items to accounting-related and acquisition records. The problems 
outlined above contribute to weak linkages for substantiating the 
acquisition date and valuation of property, which is paramount not only 
for computing depreciation, but for overall accountability. These 
issues can contribute to financial statement implications, as was the 
case in fiscal year 2002 when FEMA had to record a prior period 
adjustment as of September 30, 2001, to increase equipment acquisition 
cost and accumulated depreciation by $74.5 million and $71.7 million, 
respectively. In general, property items should track to their 
supporting procurement information, and accounting records should 
correlate to any FEMA property located at either FEMA sites or in the 
custody of others.

Although FEMA officials had hoped to acquire a new property management 
system, plans to do so were deferred in 2002 because OMB issued a 
systems purchase moratorium for agency functional areas being 
transferred to DHS. To help address its issues regarding accountability 
over property, FEMA hired contractors to perform an inventory of its 
capitalized property in 2002. The contractor found 11 specific areas 
that they believed "warranted further attention by FEMA to ensure the 
completeness and accuracy of the agency's capital property." One of the 
areas noted was the need for FEMA to complete a wall-to-wall inventory 
of all property. The contractors reported that a significant number of 
items were identified during the inventories that were not in LIMS. 
According to the report, it "seems that when headquarters requests an 
inventory of capitalized equipment, typically the field simply 'prints' 
what is in LIMS and then validates its on-site or deployed location.":

Such an approach does not account for or help identify noncapitalized 
property such as accountable and personal property that is not recorded 
in LIMS. FEMA's weak inventory practices were reported on again in 
FEMA's fiscal year 2002 audit report, as the auditor noted that some 
Accountable Property Officers (APO) did not check property on-site 
against LIMS records (i.e., a floor-to-book test) and that some 
locations did not provide a current or complete certified 
inventory[Footnote 17] as part of the baseline inventory effort. Such 
inventory practices cast doubt as to the completeness and reliability 
of FEMA's property information.

Despite agency guidance requiring annual inventories for capital, 
accountable, and sensitive property, as well as its status as an action 
item from its fiscal year 2002 audit, inventories for accountable or 
sensitive property were not completed by all site locations in fiscal 
year 2003. One official told us this could be because FEMA wanted to 
wait until bar-coding capability was fully functional in LIMS, which 
would help provide for better and more accurate tracking of inventory, 
but that capability was never fully implemented. Also, since each 
region is responsible for doing its own inventory of capitalized and 
accountable property and sending a memo to FEMA headquarters certifying 
that an inventory was completed; and because the organizational 
structure for FEMA's property management section has changed 
significantly since the fiscal year 2002 financial statement audit, 
according to FEMA officials, there may have been confusion among field 
staff as to the person responsible for receiving the memos.

Because FEMA is just a piece of a much larger DHS and no longer 
receives a stand-alone audit, it receives much less audit attention and 
problems that are identified are not necessarily material when viewed 
DHS-wide. For example, FEMA control weaknesses found during the 2002 
audit were not included in DHS's departmentwide audit report, but 
instead were included in an observations and recommendations comment 
provided to EP&R. In addition, FEMA's capitalization threshold was 
raised from $25,000 to $50,000 upon transferring its functions to DHS, 
which results in less audit coverage for property on an agencywide 
basis. This elevated capitalization level could result in an 
unintentional lack of accountability over property that was formerly 
required to be tracked and inventoried for financial statement 
purposes. A prime illustration of this is the previously mentioned 
manual transfer of the acquisition dates, which is currently limited to 
capitalized property, thus excluding accountable and sensitive items. 
Further, due to its relatively decreased prominence at DHS from an 
audit perspective, FEMA will not receive the visibility and oversight 
afforded the annual financial statement audits, as it had before 
transferring its functions to DHS. Thus, it is incumbent upon FEMA to 
effectively account for, track, and inventory all of its property to 
ensure that it does not lose what it has gained as a result of its 
property management improvements.

Conclusion:

Federal agency property management systems are critical for 
establishing financial accounting and maintaining accountability over 
property. Such systems assist property managers in managing their 
property in accordance with missions and roles established by Congress. 
FEMA's lack of adequate systems and processes to ensure that all 
property, plant, and equipment are properly recorded, accurately 
depreciated, and tracked not only creates an environment where property 
is highly susceptible to loss or misappropriation with little risk of 
detection, but also affects the accuracy of the property and financial 
information used by managers to make key agency decisions. Even with 
the improvements made thus far, the overall lack of transparency in 
FEMA's acquisition and property management processes could result in 
highly sensitive and accountable property not being entered into the 
property system and thus not accounted for. If this situation continues 
over time, it could affect FEMA's and ultimately DHS's ability to 
effectively manage its limited resources and assets. This is extremely 
important for an organization such as FEMA whose mission requires it 
and its property to be highly versatile and mobile on a moment's 
notice. Therefore, it is important that FEMA management establish 
adequate financial management systems and internal controls over these 
highly vulnerable assets.

Recommendations for Executive Action:

In order to establish adequate internal control over property 
management and reduce vulnerability to fraud, waste, and abuse, we 
recommend that the Secretary of the Department of Homeland Security 
direct the Under Secretary for Emergency Preparedness and Response or 
Under Secretary for Management to take the following six actions:

* Require FEMA's property system to be linked to acquisition and 
financial systems so certain key information can be available for 
effective property management.

* Require floor-to-book inventories in addition to current inventory 
processes.

* Ensure, through the use of a tracking system or official document, 
that all FEMA locations complete a comprehensive inventory of all 
property, including accountable and sensitive items, on an annual 
basis.

* Reiterate and clarify property management procedures for certifying 
and documenting inventories.

* Ensure that documentation of the inventories is collected and 
maintained in a central location at headquarters for management review.

* Identify employees responsible for receiving, reviewing, following 
up on, and maintaining inventory certifications and results from FEMA's 
field and disaster locations.

Agency Comments on Our Evaluation:

We obtained oral comments on a draft of this report from FEMA 
officials. They generally agreed with our conclusions and 
recommendations. However, they stated that some of the actions called 
for are already in place. As a result, we have incorporated changes to 
emphasize that the appropriate officials not only receive the inventory 
certifications and documentation, but also review, follow-up on, and 
maintain them. Further, we would like to recognize the fact that some 
of these recommendations, namely those dealing with the need for an 
integrated property management system and the issuance of policy are 
now under the direction of DHS and will likely take time to be 
implemented at the departmental level. FEMA officials also provided 
technical comments, which we incorporated as appropriate.

Once published, we plan to send copies of this letter to the Chairs and 
Ranking Members of the Senate Governmental Affairs Committee, the House 
Government Reform Committee, and other interested congressional 
committees, as well as the Director of the Office of Management and 
Budget, and other interested parties within DHS. We will provide copies 
to others upon request. This letter will also be available on GAO's Web 
site at http://www.gao.gov. Please contact me at (202) 512-6906 or by 
e-mail at williamsM1@gao.gov or Casey Keplinger, Assistant Director, at 
(202) 512-9323 or by e-mail at keplingerc@gao.gov. Major contributors 
to this letter were Cary Chappell, Lisa Crye, and Saurav Prasad.

Sincerely yours,

Signed by: 

McCoy Williams:

Director, Financial Management and Assurance:

Appendix I:

In fiscal year 2002, FEMA's independent auditor identified several 
weaknesses, which we have categorized into nine general areas for which 
personal property controls need to be improved (see table). 
Additionally, FEMA's corrective actions as of May 19, 2004 have been 
included.

Table 2: Reportable Weaknesses from FEMA's Fiscal Year 2002 Performance 
and Accountability Report:

[See PDF for image]

Source: FEMA Annual Performance & Accountability Report Fiscal Year 
2002.

[End of table]

(195021):

FOOTNOTES

[1] See 31 U.S.C.  901(b), 3515(a), 3521(e) (2000).

[2] A qualified opinion states that except for the effects of the 
matter to which the qualification relates, the financial statements 
present fairly, in all material respects, the assets, liabilities, net 
position, net costs, changes in net position, budgetary resources, 
reconciliation of net costs with budgetary obligations, and custodial 
activities (if applicable) in conformity with Generally Accepted 
Accounting Principles.

[3] The Joint Financial Management Improvement Program (JFMIP) is a 
joint and cooperative undertaking of the U.S. Department of the 
Treasury, the General Accounting Office, the Office of Management and 
Budget, and the Office of Personnel Management working with each other 
and other agencies to improve financial management practices in 
government. 

[4] A material weakness is a condition that precludes the entity's 
internal control from providing reasonable assurance that 
misstatements, losses, or noncompliance material in relation to the 
financial statements or to the stewardship information would be 
prevented or detected on a timely basis.

[5] Reportable conditions are matters coming to an auditor's attention 
that, in their judgment, should be communicated because these represent 
significant deficiencies in the design or operation of internal control 
that could adversely affect the federal government's ability to meet 
the internal control objectives. 

[6] Federal Emergency Management Agency, Annual Performance and 
Accountability Report Fiscal Year 2002 (Washington, D.C.: Jan. 24, 
2003).

[7] U.S. General Accounting Office, Major Management Challenges and 
Program Risks: Federal Emergency Management Agency, GAO-03-113 
(Washington, D.C.: Jan. 24, 2003).

[8] See 31 U.S.C.  901(b), 3515(a), 3521(e) (2000).

[9] Capitalized property refers to nonexpendable property (excluding 
stewardship property, plant, and equipment) with a useful life of 2 
years or more and an acquisition cost above a predetermined dollar 
value threshold.

[10] This threshold was increased to $50,000 by DHS.

[11] FEMA defines sensitive property as accountable property 
(regardless of original acquisition cost), that is highly susceptible 
to misuse, loss, or theft, and will be accounted for and controlled 
through the use of LIMS. An annual physical inventory and a complete 
audit trail from receipt to final disposition are required for 
sensitive equipment.

[12] Custody receipts are used when property is issued or delivered to 
a recipient, who is to sign for the items, retain a copy, and return 
the signed original to the issuer to file.

[13] U.S. General Accounting Office, Internal Control: Standards for 
Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 
(Washington, D.C.: November 1999).

[14] Joint Financial Management Improvement Program, Federal Financial 
Management System Requirements: Property Management Systems 
Requirements, JFMIP-SR-00-4 (Washington, D.C.: October 2000).

[15] JFMIP-SR-00-4.

[16] GAO-03-113. 

[17] According to FEMA's Personal Property Management guidance, 
Property Management Officers (PMO) and APOs must certify that an annual 
inventory was accomplished as prescribed.